Negative Rates Are Coming to the UK and US. Protect Your Savings

Negative rates are the destruction of money, an economic aberration based on the mistakes of many central banks and some of their economists who start from a wrong diagnosis: the idea that economic agents do not take more credit or invest more because they choose to save too much and therefore saving must be penalized to stimulate the economy. Excuse the bluntness, but it is a ludicrous idea.

Inflation and growth are not low due to excess savings, but because of excess debt, perpetuating overcapacity with low rates and high liquidity and zombifying the economy by subsidizing the low productivity and highly indebted sectors and penalizing high productivity with rising and confiscatory taxation.

Historical evidence of negative rates shows that they do not help reduce debt, they incentivize it, they do not strengthen the credit capacity of families, because the prices of non-replicable assets (real estate, etc.) skyrocket because of monetary excess, and the lower cost of debt does not compensate for the greater risk.

Investment and credit growth are not subdued because economic agents are ignorant or saving too much, but because they don’t have amnesia. Families and businesses are more cautious in their investment and spending decisions because they perceive, correctly, that the reality of the economy they see each day does not correspond to the cost and the quantity of money.

It is completely incorrect to think that families and businesses are not investing or spending. They are only spending less than what central planners would want. However, that is not a mistake from the private sector side, but a typical case of central planners’ misguided estimates, that come from using 2001-2007 as “base case” of investment and credit demand instead of what those years really were: a bubble.

The argument of the central planners is based on an inconsistency: That rates are negative because markets demand them, not because they are imposed by the central bank. If that were the case, why don’t they let rates float freely if the result was going to be the same? Because it is false.

Think for a moment what type of investment, company or financial decision is one that is profitable with rates at -0.5% but unviable with rates at 1%. A time bomb. It is no surprise that investment in bubble-prone sectors are rising with negative rates and non-replicable and financial assets skyrocket.

Public debt trades at artificially low yields and, instead of strengthening economies, negative rates make governments more dependent on cheap debt. Politicians abandon any reformist impulse and prefer to accumulate more debt.

The financial repression of central banks begins with a misdiagnosis, assuming that low growth and below-target inflation is a problem of demand, not of the previous excess, and ends up perpetuating the bubbles that they sought to solve.

The policy of negative types can only be defended by people who have never invested or created a job because no one that has worked in the real economy can believe that financial repression will lead economic agents to take much more credit and strengthen the economy.

Negative rates are a huge transfer of wealth from savers and real wages to the government and the indebted. A tax on caution. The destruction of the perception of risk that always benefits the most reckless. The bailout of the inefficient.

Central banks ignore the effects of demography, technology and competition on inflation and growth of consumption, credit, and investment, and with the wrong policies generate new bubbles that become more dangerous than the previous ones. The next bubble is to increase again the fiscal imbalances of the countries. Even worse. When central banks present themselves as the agent that will reverse the effect of technology and demographics, they create a greater risk and bubble.

Protect your savings with gold, silver, inflation-linked instruments and stocks in sectors that do not suffer from negative rates.

I'm reading many negatives on precious metals. The dollar is finished. The COMEX has disconnected from paper value to actual retail bullion demand. Happens every time a fiat currency begins to collapse.

JPMorgan just paid 920 million in fines with criminal indictments (8) for 100,000s of manipulations. Of course there was just a slap on the hand and our government decided it was in the best interests of everyone (there bank accounts) not to enforce the criminal indictments.

Hard assets and no debt are the first items to prepare with. Silver and gold will be the units of exchange like they always have been when paper money collapses. The value of precious metals have been manipulated by just two banks during the last 20 years. JPMorgan was the primary mover.

I have repeatedly posted about a silver proxy everyone can follow and yet it falls on deaf ears. Silver war nickels. I was recently surprised to see the value increase 50% in two months. The value of them have now exceeded many baskets of goods including gasoline we use to measure inflation. They are telling us we are in a deflationary death spiral. In two months we went from 3 war nickels to less than 2 for a gallon of gasoline as an example.

Consistent reports from Venezuela show that precious metals and particularly silver for everyday purchase have protected those with the foresight to transfer from the Bolivar before the collapse. Barter will work, however it is very cumbersome. Barter does not reflect the unit of labor that precious metals retain. For example if I buy a new generator for my house, silver and gold will expedite the delivery. Thousands of bullets, outdated cans of food, old clothes, fire wood, labor and other barterable items will not do that.

I am still out on crypto currency. I see the value however as a global asset (ethereum) and not ready for local exchange. Our perceptions on the dollar as a world currency are based on a post WW2 Brentton Woods agreement. Since Nixon decoupled gold from the dollar we have been in a death spiral. Only our military has been able to enforce it. That is coming to an end. Our normalcy bias is the belief the dollar will not collapse.

We need to ask ourselves why world players have been buying gold and silver. China and India have been major purchasers. What is the value of that paper we call the dollar worth? What is the value when our central banks can just type in a trillion here and a trillion there? This was never a loan. This was never meant to be paid back. This was a constant dilution of our savings and a socialist wealth transfer.

But in a SHTF situation where the banks implode the Feds will have to offer up some sort of sacrifice to show the public that they are bailing out the banking system and not the bank owners.

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That may have been true at one time of day. But the arrogant elites in DC don’t give a damn what the public thinks or perceives. Let them eat cake.

And why should our rulers care? Nothing ever happens to them. If we don’t like what they’re doing so what? There is zero accountability in DC. None whatsoever.

Life is good for the DC Insiders.

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